Women, take control of your finances before it’s too late

JenniferOpenshaw

New data show that women are living longer, so it’s even more important to make smart decisions that will help us to live better in our older years.

The average 65-year-old woman living in the U.S. or Canada today will live up to 88.8 years, on average, up from 86.4 in 2000, according to the Society of Actuaries. And while men are also expected to live longer than before, the average woman will still live longer than the average man.

What does this mean for women?

If you’re not in control of your finances, you need to be. Women who are abdicating the finances to their husbands or partners — or find themselves “too busy” to pay attention — should take a step back and ask: What would I do if something happened? Will I be ready to retire? Can I support myself? Can I keep the household running?

About 80% of women will be solely in control of their finances at some point, either because they marry later, divorce, or end up widowed.

My own mother, who became a widow about five years ago, finally had the light bulb go off: “Look around, in the care facilities or any place, and it’s all women who continue to outlive their husbands,” she said in an “a-ha” moment.

Fidelity’s Kathy Murphy, president of Personal Investing at the giant mutual fund company, says that women should not wait for a major life event to take them by surprise. “Taking control of your finances isn’t just a choice today; it’s a necessity,” she says. Whether it’s you, your mother, your wife, sister or daughter — all women will have to make important financial decisions in their life, and the sooner they engage, the better off they’ll be.”

So what can women do to live well while they’re living longer?

Max out

As you age, the power of your money lessens. In fact, just a 3% annual inflation rate cuts your buying power in half over 25 years, says Fidelity. A loaf of bread, for example, cost about 70 cents in 1990, and today runs about $2.00 (or more).

Your 401(k) is perhaps your best bet for making your money grow because you contribute a portion of your wages before you pay taxes. If you save 10% of a $30,000 salary in a 401(k), for example, that’s $3,000. But if you didn’t contribute that to your 401(k), you’d only be pocketing about $2,200 after paying taxes on it. The government taxes neither your 401(k) contributions nor the investment returns on those contributions until they are withdrawn as benefits at retirement.

Over 25 years, that savings every year will grow to about $200,000 or about $255,000 if your employer offers a match of 50 cents for every dollar you save (up to 6%). In 2015, you can contribute up to $18,000 in a 401(k) and, if you are age 50 or over, you can contribute an additional $6,000 or $24,000 in total.

Flex it

Health-care expenses — including co-pays, over-the-counter drugs, and even laser eye surgery — can really add up. A flexible spending account allows you to set aside money on a pre-tax basis — meaning, it goes from your paycheck into an account, bypassing the taxes that would normally reduce your take-home pay. Your flexible spending account, then, allows you to pay for a host of medical expenses that might otherwise come out of your pocket, making a $300 expense really about $200 because of the tax savings (depending on your tax bracket).

Ask for it

How can you get a raise if you don’t ask? Women still earn less than men on average and the pay gap grows as women age. The problem can begin with the first paycheck: While men tend to see a job offer as a starting point for negotiations, women are less likely to counter. Remember, the best time to negotiate is usually when you walk into a new job — or your first job — since that typically becomes the foundation for future pay raises.

If you’re considering asking for a raise in a current role, be ready to point out the impact you’ve made, whether it’s taking on the additional responsibilities of a co-worker or bringing in business that has clearly exceeded your own “cost.” Finally, remember that practice helps. Just as you would practice for an audition or job interview, practice the “ask.” While some research says it may hurt women to ask for a pay raise because they might appear greedy or demanding, other research suggests using charm can help. Asking is never easy, but with a little practice and a lot of confidence, you’ll be far more likely to get what you deserve.

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